1. “Picking Your Repayment Plan” Strategies for Successfully Managing Loan Repayment

2. Today’s speaker … Ken Brown Student Financial Services Northwestern University 555 Clark Street, 1 st Floor Evanston, IL 60208 (847) 491- 8950

3. The State of American Finances? Do you ever feel like this? http://www.hulu.com/watch/1389/saturd ay-night-live-dont-buy-stuffhttp://www.hulu.com/watch/1389/saturd ay-night-live-dont-buy-stuff

4. Agenda Repayment Realities Federal Loan Repayment Plans Loan Forgiveness Options Choosing Your Federal Loan Repayment Plan Developing a Spending Plan and Other Helpful Strategies Feel free to ask questions at any time!

5. Repayment Realities

6. The reality is this… Financial planning starts now! You may be able to reduce the total amount you pay back on your student loans Strategy is key to your success Starting a Spending Plan (Budget) is critical to your financial success

7. To successfully manage loan repayment, you should... Know how much you have to repay and to whom. (Check out Debt Summary page in CAESAR.) Understand the terms and conditions of your loans Define your short- and long-term financial goals Develop an affordable spending plan plan and estimate how much you can afford to pay each month on your debt Select the repayment plan that best achieves your goals given what you can afford to pay each month Take advantage of loan forgiveness programs when you qualify for them Keep good financial records

8. CAESAR > Student Center > View Debt Summary Information

9. Finding Your Federal Loans www.nslds.ed.gov To access you provide: - SS# - Date of Birth - First 2 letters (last name) - PIN # (www.pin.ed.gov)www.pin.ed.gov

10. Loan Terms Loan Type Interest Rate Grace Period Repayment Plans Repayment Plans (No penalty for prepayment.) Deferment, Forbearance, Forgiveness, Cancelation Federal Subsidized Direct & FFEL Stafford Loans 6.8% fixed (DOE pays interest during school, grace, & deferment) 6 months5 options - can change plans annually ALL Federal Unsubsidized Direct & FFEL Stafford Loan 6.8% fixed6 months5 options- can change plans annually ALL Federal Direct Grad PLUS Loan 7.9% fixed6 months5 options- can change plans annually ALL Federal (FFEL) Grad PLUS Loan 8.5% fixed6 months5 options- can change plans annually ALL Federal Perkins Loan 5.0% fixed (DOE pays interest during school, grace, & deferment) 9 months (6 month post-deferment) 10 year standardALL Private NU LoanVariable (changes each Sept 1 st ) 3 months10 year standardForbearance & limited cancelation only Federal Direct & FFEL Consolidation Loan Fixed (weighted average not to exceed 8.25%) None5 options- can change plans annually ALL

11. Federal Loan Repayment Plans

12. Comparison of Repayment Plans Options Payment Structure Maximum Payment Period Additional Features Standard Fixed10 years - Highest initial payment - Lowest total interest - No negative amortization Graduated Tiered10 years - Interest only payments initially - Payments increase incrementally - No negative amortization - Monthly payments can’t be more than three times greater than any other payment (“3 times rule”) Extended Fixed or tiered25 years - Lowest initial payment without considering income - No negative amortization - To qualify in FFELP: - FFELP debt must be > $30,000 - New FFELP borrower ≥ 10/7/98 Income Sensitive Adjusted annually based on: - Total gross income 15 years - No negative amortization Income Based (IBR) Adjusted annually based on: - Household AGI - Household size - Poverty guideline - State residence 25 years - Payment is 15% of “disposable” income if experiencing “partial financial hardship” (PFH) - Eligibility/payment amount re- evaluated annually - Negative amortization allowed

13. Comparing Federal Loan Repayment Plans $100,000 Stafford Loan Balance OptionsStandardGraduatedExtendedIBR Monthly Payment $1,151 $695 (2 yrs) $694 $305 (1 st yr). $457 (9 th yr). $885 (23 rd yr) $2,078 (9 yrs) Maximum Payment Period 10 years 25 years22.9 years Total Paid$138,096$148,564$208,222$215,592 Assumptions:- 6.80% fixed interest rate with $100,000 of loan debt - No payment incentives - For IBR Payment: - Household AGI = $40,000 in year 1, then increases by 4% annually - 2010 Poverty Guideline for household size of 1 = $10,890

14. Repayment Calculators You can find EXCELLENT loan repayment calculators at http://edfund.org/loancalculator/ http://edfund.org/loancalculator/ You can use the above calculator to compare all of the different repayment plans to see which is best for your individual situation.

15. Loan Forgiveness Options

16. Public Service Loan Forgiveness (Direct Loans only) Must work full-time (30 hours per week) for 10 years in Public Service: Non-profit, tax exempt, 501(c)(3) organizations Federal, state or local government Military service Public schools and colleges Does not have to be continuous work Keep documentation from employers After making 120 qualifying on-time loan payments to Direct Loans after October 1, 2007, your entire loan balance (principal & interest) are forgiven.

17. Public Service Loan Forgiveness Pros and Cons Potential Pros May make it possible financially for you to pursue public service career Portion of your debt may be forgiven Potential Cons “All or nothing” benefit; must put in full 10 years Only Direct Loans can be forgiven— you’ll need to consolidate FFEL loans into Direct Loan Program to be eligible

18. For more information on IBR and Public Service Loan Forgiveness Equal Justice Works has information about both programs at: EqualJusticeWorks.or “Project on Student Debt” has created a special Website specifically about IBR at: IBRinfo.org

19. Other Loan Forgiveness Programs Loan Forgiveness Options Programs http://www.finaid.org/loans/forgiveness. phtml

20. Choosing Your Federal Student Loan Repayment Plan

21. Choosing A Repayment Plan Steps to consider … 1.Define financial goals 2.Develop an affordable spending plan. “You have to be knowin’ where your money is goin’” 3.View debt as a portfolio 4.Select the loan repayment plan that best meets individual needs

22. Setting Goals Sample Questions How quickly do I want to be debt-free? What do I want to buy as soon as I graduate? What kind of lifestyle do I want? What are my hopes for my family? How long do I want to work? When do I want to retire? What kind of lifestyle do I want in retirement? How much money will I need to invest to retire?

23. Developing a spending plan How much can you afford to pay each month? Quantify monthly earnings and other available financial resources Estimate monthly expenses Include monthly student loan payment Include investment/savings contributions Do the math- is there a surplus or a deficit If there is a surplus, more can be allocated to debt repayment, to investment/savings, and/or to lifestyle If a deficit occurs, then what?

24. Eliminating a Spending plan Deficit What can you do? Reduce spending on your lifestyle Is this realistic? Reduce your investment/savings contributions May make it more difficult to achieve short-and long- term financial goals Reduce amount you pay each month on student loans If you have a spending plan deficit, you need to spend less (or earn more) each month; there is no more financial aid! Failure to eliminate the deficit will increase your total debt.

25. Strategies for Reducing Your Spending Live with roommate(s) Take your own lunch; bring your own coffee, snacks, etc. Eat at cheap places when dining out Have only one phone — either cell or home phone Avoid excess phone features and services that add to your phone’s cost Have “free fun” Rent/share DVDs or go to matinees Dress for less — shop at discount stores Clip & use coupons, but only on things you need Use public transit, carpool Shop with a list and buy only what’s on that list Beware of “impulse” shopping and buying for “convenience” Use the 30 day rule. Other ideas ? ? ?

26. Spending Plan Use Tools Use tools such as worksheets, spreadsheets and online calculators www.mint.com You can find a variety of online calculators at http://www.finaid.org/calculators/ http://www.finaid.org/calculators/ In-School spending plan How Much to Borrower Loan Repayment

27. Managing Debt Balancing Trade-offs Consider viewing your debt as a portfolio that can be leveraged to achieve your financial goals You may choose to pay off debt … as fast as possible, OR more slowly based solely on what is affordable given all other expenses, OR more slowly to maximize ability to save and/or invest for the future

28. Repayment Strategy Prioritize repayment efforts - prepay the most expensive debt FIRST!

29. Typical Debt Portfolio Managing Cash Flow to Repay Debt Total Cash Flow Federal Stafford Loan debt @ 6.8% Federal PLUS Loan debt @ 7.9% Private loan debt @ 11% Credit card debt @ 15.9% Other debt @ 9%

30. Always Pay Yourself First! Try to save a little money every month. Example: Fred and Sarah each save $2,000 a year ($167/mo)in an Individual Retirement Account (IRA) Fred starting saving at age 22 and stopped at age 31 (9 years) Sarah starting saving at age 31 and continued to do so until she retired (34 years). Assuming both IRA’s earn 9%, who will have more money for retirement at age 65?

31. Always Pay Yourself First (cont) Fred will. His account will grow to $579,504. Sarah’s will grow only to $470,247 HOW CAN THIS BE? Fred invested only $18,000 and Sarah will invest $68,000. Answer: Compound interest! While Fred invested less money, he started 9 years sooner than Sarah did. Sarah’s money just didn’t have enough time to grow.

32. A Few Final Comments...

33. When Choosing a Repayment Plan You should consider the following... If you want to pay the least amount of total interest over the life of repayment Standard Repayment Plan If you want the lowest possible monthly federal student loan payment Income-Based Repayment Plan Extended Repayment Plan

34. Check your Credit Report www.annualcreditreport.com

35. Helpful Web Sites “Feed the Pig” (Saving): http://www.feedthepig.org/ http://www.feedthepig.org/ “You Can Deal With It” (Budgeting): http://www.youcandealwithit.com/index. html http://www.youcandealwithit.com/index. html Loan Forgiveness: http://mappingyourfuture.org/paying/for giveness.htm http://mappingyourfuture.org/paying/for giveness.htm Loan Calculators: http://www.edfund.org/wps/portal/Loan Calculator http://www.edfund.org/wps/portal/Loan Calculator

36. We are here to help! Student Financial Services 555 Clark Street, 1 st Floor Evanston, IL 60208 (847) 491- 8950 gradfinaid@northwestern.edu

37. Additional Information

38. Standard Repayment Monthly payment is fixed – the same minimum payment is due each month (your monthly payment typically changes only if your loan has a variable interest rate and that interest rate changes) Maximum repayment period is 10 years on Federal Stafford/Federal PLUS Loans Results in lowest amount of total interest paid Requires the highest initial monthly payment Your loan holder/servicer will place you on this repayment plan unless you choose one of the other available repayment plans and notify your loan holder/servicer of that choice.

39. Graduated Repayment Payments start low, then increase in one or more increments over time Maximum repayment period is 10 years on Federal Stafford/Federal PLUS Loans Results in higher cost of interest paid than under Standard Plan Lenders must offer at least one graduated repayment plan; some offer more than one graduated option

40. Extended Repayment Fixed or graduated (tiered) payments over 25 year repayment period Lower monthly payment than Standard or Graduated Plans with 10-year repayment schedules More total interest paid Available only to those FFELP borrowers who: First borrowed a FFELP loan on or after 10/7/98, or have no outstanding balance on a FFELP loan that was borrowed prior to 10/7/98, and Have more than $30,000 in FFELP debt

41. Income-Sensitive Repayment Eligibility based on your expected total gross monthly income received from all sources and loan amount Payment must at least equal interest charges Reviewed and adjusted annually in case of any income changes Maximum repayment period is 15 years on Federal Stafford/Federal PLUS Loans Results in lower monthly payment, but higher cost of interest paid